MICROCAPITAL.ORG STORY: BlueOrchard Private Equity Fund Invests Rs 500 million ($10.2 million) in Asmitha Microfin

BlueOrchard [1], a commercial microfinance investment intermediary based in Switzerland, has, through its Private Equity fund, invested Rs 500 million (the equivalent of over USD 10.2 million) in the equity of Asmitha Microfin Limited [2], a Microfinance Institution (MFI) based in Hyderabad, India. This was announced in a press release [3] available on the Asmitha website. Microcapital covered the relationship between these two organizations in October of 2008 when BlueOrchard made an initial equity investment in Asmitha of USD 5.3 million intended to “expand [the MFI’s] capital base and bolster its borrowing capacity” [4]. According to Dr. Vidya Sravanthi, Chairperson and Managing Director of Asmitha, the MFI hopes to use the newest investment to “[expand] its operations deeper into the Indian rural markets and offering its services to many more of the under-served poor in these regions” as well as move toward “growth targets” set by Blue Orchard [3].

Asmitha was founded in 2002 in an effort to give “rural poor women access to financial resources in the form of collateral free small loans” [2]. In fact, the Mix Market, the microfinance information clearinghouse, shows that 100 percent of Asmitha’s loans are provided for women [5]. Now, according to Dr. Sravanthi, Asmitha has one of the top-five biggest loan portfolios of any MFI in India at USD 165 million (as of July 31, 2009), and “serves over 1.16 million clients” [3]. It was also ranked 29th in a Forbes list of the top 50 MFIs in 2007, a list that was highlighted by MicroCapital in January 2008 [6] [7]. According to the Mix Market, as of March 31, 2009, Asmitha has a 5.33 percent return on assets, a 55.52 percent return on equity, a capital/asset ratio of 10 percent, and a gross loan portfolio to total assets ratio of 61.37 percent [7].

BlueOrchard’s Private Equity fund was launched at the end of 2007 in an effort to “[forge] long-term partnerships with MFIs worldwide” [8]. Though the parent company is Swiss, the Private Equity fund is registered in Luxemburg, and is managed through BlueOrchard Investments, a subsidiary of BlueOrchard set up to “[invest] in the equity of microfinance institutions and microfinance network funds (family of MFIs)” [1]. According to BlueOrchard’s annual report, the fund has raised USD 131.1 million in total assets after just one year of existence, as of December 31, 2008 [9] (page5). These assets have been defined as “committed capital,” or funds to be invested in MFIs and/or network funds [9].

BlueOrchard also has various other assets under management. These funds were highlighted by Microcapital [10] in June of 2009 in an interview with Jean-Pierre Klumpp, the Chief Executive Officer of BlueOrchard. The largest fund in terms of assets under management is the Dexia Micro-Credit Fund [11]. Founded in 1998 by the Dexia Banque Internationale à Luxembourg [12], the fund is “the first commercial investment fund designed to refinance microfinance institutions specialised in financial services to small companies in emerging markets” [11]. It is managed by BlueOrchard’s other subsidiary, BlueOrchard Finance, who specialize in providing loans to MFIs [1] [11]. According to Mr. Klumpp, the Dexia Micro-Credit Fund has USD 477 million assets under management as of May 2009, extends to almost 100 MFIs in 30 countries, and reaches over 400,000 clients [10].

BlueOrchard Finance, along with Edmond de Rothschild Asset Management, “an investment banking subsidiary of LCF Rothschild Group,”[13] also manages The Saint-Honoré Microfinance Fund, which invests in “local and regional investment funds, MFI network funds, cooperatives, etc,” and has assets under management of over USD 14.3 million as of May 2009 [14].

Additionally, BlueOrchard is an advisor to the portfolio of BBVA Codespa Microfinance Fund [15], a regional fund in Latin America with assets under management of over USD 40 million as of May 2009 [11]. Microcapital [16] covered the launch of this “microfinance hedge fund”.

There are also three collateralized debt obligations (CDOs), funds backed by securities, that BlueOrchard Finance uses to finance MFIs [11]. These CDOs are BlueOrchard Microfinance Securities 1 (BOMS 1) [17], which “[offers] US private and institutional investors [an] … opportunity to acquire notes collateralised by MFI debt obligations,” BlueOrchard Loans for Development 1/2006 (BOLD 1) [18], which works with Morgan Stanley to “[offer] 5-year funding at fixed rates to 21 fast growing MFIs in 13 countries,” and BlueOrchard Loans For Development 2/2007 (BOLD 2) [19], which was the first “significant CDO” to have a joint launch with a major investment bank (Morgan Stanley) in order to fund microfinance. As of December 31, 2008, these CDOs have a combined portfolio value of USD 277.4, according to Blue News [20], a “social performance report” by BlueOrchard (page 6).

Microcapital [21] covered these varied funds in a June 2009 article about a USD 28 million disbursement made by BlueOrchard. Additionally, this article covered the Microfinance Enhancement Facility (MEF) [22], a facility co-managed by BlueOrchard, ResponsAbility Social Investments [23], who “combine traditional financial investments with social returns, and Cyrano Management [24], “a corporation specialized in financial institutions and investment funds that service small businesses”. The facility was started by the International Finance Corporation (IFC) [25], the investment and advice portion of the World Bank working in the private sector, and KfW Entwicklungsbank [26], a development bank that has the goals of “reducing poverty, making globalisation fair, conserving natural resources and ensuring peace”. The MEF has undertaken the task of helping MFIs refinance amidst the financial crisis, and had “new investments [totaling] $16.2 billion in fiscal 2008,” according to a press release [27].

BlueOrchard, as a complete entity, is not listed on the MIX Market. However, from BlueOrchard’s annual review, it is shown that the company’s “partner MFIs” experienced an average asset growth of 45 percent in 2008 and that BlueOrchard funds “reached more than 9 million micro-entrepreneurs, a majority of them women [9] (page 5). Additionally, Blue News shows that, as of January 2009, BlueOrchard has “nearly USD 870 million [assets] under management” with returns on these “investment products between 4 and 10 percent – depending on each microfinance investment vehicles’ strategy” [20] (page 1).

By Christopher Maggio, Research Assistant

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